Sunday, July 23, 2017

"Pay-when-Paid" provision struck down by Appellate Court

The District Court in Nassau County was faced with a claim by a contractor that sought to enforce a mechanic's lien and recover for alleged non-payment under a construction contract.   The contract at issue contained the following provision:

The obligation of Contractor to make any payment under this Agreement, whether a progress or final payment, or for extras or change orders, is subject to the express condition precedent of payment therefor by Owner and Owner's lender. Owner's and Owner's lender's determination of the percentage complete of Subcontractor's Work shall be final and binding and Subcontractor agrees that in no event shall Subcontractor receive payment from Contractor for a greater proportionate value of the Work than what is approved by Owner and Owner's lender.

The Appellate Term held that the provision was a "pay-when-paid" clause and thus, under long settled New York law, was void and unenforceable.  Unfortunately for this contractor-plaintiff the contract also contained a severability clause and six month limitations period.  Therefore, while the pay-when-paid portion was struck down, it did not void the entire agreement by virtue of the severability clause and the Court refused to strike down the six month limitations period.  Because the plaintiff failed to file its claim within six months, the claims were time barred and dismissed.  

The case was Polar Bear Mechanical, Inc. v. Walison Corp.

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